Fifty years in Wall Street
financial center of the world. The recent severe financial disturbance
in Wall Street, resulting in a reduction in the value of securities
aggregating over $3,000,000, has proven one important thing, and that is
that Wall Street and the industrial interests of the country have
finally largely separated, and that a panic in Wall Street, while
depressing, need not necessarily cause one at the same time in
mercantile circles.
No doubt some of the Trusts and railway companies, accustomed to driving
with a too free hand, and without much regard for the law, considered
they were being handled very harshly by the law officers of the
Government when they were brought up with a round turn and heavily fined
for rebating. But, as they had violated the law wilfully, they had only
themselves to blame, and they well knew that the way of the transgressor
is hard—when convicted. There was some reason, however, in the complaint
of some of the railways that in many of the States they had been made
the targets of an aggressive popular policy towards corporations, that
is, the policy of enforcing rigorously laws which might in some cases,
such as the passenger and commodity rate laws by the States, finally be
declared unconstitutional by the Supreme Court of the United States.
Our large railway and industrial corporations were primarily responsible
for the disturbance and loss of confidence in the monetary situation
through their recklessly extravagant issues of bonds, stocks, and
short-term notes. For a long time they seemed to be doing their best to
kill, in this way, the goose that laid the golden egg, and they finally
succeeded in exhausting both their own borrowing power and the ability
of the banks to lend, or of investors, at home or abroad, to purchase
their issues. This tremendous output of new securities had to be
checked, for it not only glutted the market, and overloaded underwriting
syndicates, but depreciated values and created distrust among investors.
It was piling Pelion on Ossa with a vengeance.
The collapse of last March in the stock market, and the more prolonged
one of August, were obviously outbreaks of the same malady, the latter
intensified by that twenty-nine-million fine. The distrust that caused
these explosions had been brewing for years, and had its origin in the
wholesale issues that over-taxed the money market and the lending
capacity of the country and also squeezed Europe like an orange for all
the money it had to lend.
It was righteous retribution that overtook some, at least, of the
wrongdoers among the larger corporations. Their chickens had come home
to roost through their own unrestricted and extravagant exploitations
and illegal and dishonest practices.
The wholesome remedy of their discontinuance, combined with proper
curtailment and conservatism, has been forced upon them by the
necessities of the situation; and the enforcement of the new laws has no
doubt put a stop to at least the most flagrant of the corporate abuses
before prevalent. But the too sudden application of the brake at a
critical turn in the road may at any time work havoc; and it is doubtful
whether rigorous prosecutions for violations of law in years gone by are
not productive of more harm than good. They are always unsettling, and
unsettlement involves a corresponding weakening of confidence.
But future offences should be prosecuted with the utmost rigor of the
law, and the railway companies and industrial corporations now fully
understand this; and not one of them would be likely to run the risk of
again violating the law, especially with imprisonment for offenders as
the penalty. We must, however, always be careful not to make the remedy
worse than the disease. In other words, the interests of the country at
large are of more importance than the punishment of corporate wrongdoers
for long past offences. Some allowance must be made for the heat of
competition in the strenuous years we have passed through, and the
former general tendency to moral laxity of men controlling and
representing corporations, when acting in their corporate capacity, a
laxity they would probably not have been guilty of in their own personal
affairs. This would, of course, indicate their want of a proper sense of
responsibility and honor. But that failing is not uncommon. Now their
eyes have been opened to the danger of being without it.
The apparent indifference of some of the principal prosecuting officers
of the Government to investment interests, in the published interviews
with them, was, however, complained of as of itself disturbing and
disconcerting to investors. It may have indicated a supposition that
only capitalists, speculators, and those of large means were affected by
the decline in stocks and bonds. The erroneousness of this impression is
shown by the stock transfer books of every large railway and industrial
corporation, in which the small holders of small means are very
numerous, running up to several or many thousands in each corporation,
and reaching a very large aggregate of shares. The small investors thus
suffer by depreciation with the large ones, and even the people of small
means with only savings bank deposits are, as we can all see, menaced
through their dividends by the depreciation of the securities held for
investment by the savings banks. Their depositors may learn a lesson in
finance from this.
Those of the State of New York report for the half year ending on June
30, 1907, a new high aggregate for deposits and resources, the deposits
being $1,394,296,034 and the resources $1,490,760,675. Yet their
surplus, calculated on the market value of their holdings of stocks and
bonds, had fallen from $108,671,735 on June 30, 1906, to $95,743,206.
Here we have a shrinkage through the decline in prices of nearly
thirteen millions or twelve per cent. of their surplus, in one year,
although the savings banks are by law restricted in their investments to
the most stable of first-class securities. If we go back to their
reports of January 1, 1901, we find their surplus was $118,294,674,
showing that the market for bonds has meanwhile been on a declining
scale. Thus the savings banks and Wall Street are shown to be related.
In this August crisis there was far too much hysteria shown where calm
judgment was called for, and this hysteria made the situation dangerous,
although there was nothing dangerous in the actual condition of the
country, apart from the distrust of credits and the scarcity of money on
time, resulting from the immense activity of general business here and
the monetary stringency abroad. A moderate slowing down of business is
consequently the best remedy for this excess, and the one that will in
the most direct and natural way generally restore ease to the money
market. Meanwhile, the banks should assist within proper limits, when
called upon, corporations and firms of proved earning capacity and known
to be sound, and discriminate against those that have only an insecure
or speculative foundation. This would accord with the teaching of the
Bible, “To him that hath shall be given and from him that hath not shall
be taken away even that which he hath.”
The popular feeling against very rich men, who have acquired their
wealth through the trusts and railways, is not a prejudice against
property, but against the supposed ways and means by which their large
fortunes were acquired. The impression is, with many, that those means
were dishonest, and that their rapacious grasping for riches involved
corruption in corporate management, and, in general, a feathering of
their own nests at the expense of the people, or at best other people.
To see them flaunting what they consider their ill-gotten gains
exasperates men, and spreads discontent and unrest among the millions.
Envy and malice are easily cultivated.
It is an inequality of wealth that they resent because they believe it
to have been created by rebating, stock watering, inside speculation,
and tricks and devices by which other people’s money was got unjustly,
and by various illegal and fraudulent practices and abuse of corporate
power. The exposures made from time to time tended to confirm the people
in this impression and prejudice, and President Roosevelt was only
responding to their call when he urged the prosecution of the
corporations known to have been among the most flagrant violators of the
anti-rebate law.
These violators were not the corporations, which we all know have no
souls, but their officers; yet the officers have gone thus far unwhipped
of justice, much to the disgust of the masses of the people. But in
future this defect should be remedied, and rich and poor among the
individual violators of the law should be prosecuted criminally, and
upon conviction sent to jail like any other criminal. I can understand
how many men, who as private individuals would have avoided criminal or
wrongful acts, had no scruples about violating laws in their corporate
capacity. This, however, is an indefensible plea. They showed a moral
laxity which has been exposed and branded as a crime, and instead of it
let us hope they have now a sense of corporate responsibility and
honesty, as a result of these Government prosecutions, and the knowledge
that in future such violations of law can hardly be repeated with
impunity. They will certainly find that honesty is the best policy.
The cry against Mr. Roosevelt has been so indiscriminate that it would
often be amusing but for its serious aspect. If a corporation, firm, or
individual fails in business nowadays, Mr. Roosevelt is blamed. If a man
makes a bad investment in anything, or if his creditors press him for
payment, or his creditors are slow to pay or go into bankruptcy, he
blames Mr. Roosevelt, while the vast host of large and small investors
in stocks and bonds all over the country are almost of one mind in
blaming Mr. Roosevelt for the depreciation in the market value of their
stocks and bonds.
I should not be surprised if very soon even the ladies who have lost at
the fashionable game of bridge will blame Mr. Roosevelt for their
losses. Everyone, nowadays, dumps his misfortunes upon Roosevelt, and
attributes the cause to him. I recently heard of a man who had been
doing a thriving business on Long Island shore catching eels and selling
them in the New York market. Lately the eels have stopped going into his
pots to be caught, so he is now going about howling against Roosevelt
for ruining his business. That is no more ridiculous than many other
things for which he is blamed, without having had anything to do with
them. In thus complaining they overlook the long train of causes and
events that led up to this year’s disturbances in Wall Street.
The public must have a scapegoat in times of excitement and discontent,
and many of our wealthy people thoughtlessly held the President
responsible for the disturbances and unsettlement we have witnessed, and
their own losses and disappointments, because he had taken the
initiative in calling upon the law officers of the Government to
prosecute the railway and industrial corporations known to have violated
the law. They seemed unaware that he did this to stop those illegal
practices which had made enormous fortunes for the favored few, and
enabled them to crush or impoverish their competitors and impose upon
the people. He was the people’s champion.
He did not advise these prosecutions without good cause, for in every
instance where a case was tried on its merits the Government secured a
conviction. Fines of large, but not enormous, amounts were levied
accordingly against many of our principal railway companies, including
the New York Central, and against large industrial corporations,